Publication details

Distribution impact of the mortgage interest deduction in the Czech Republic

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Year of publication 2014
Type Article in Periodical
Magazine / Source Review of European Studies
MU Faculty or unit

Faculty of Economics and Administration

Field Economy
Keywords microsimulation; personal income tax; revenue forgone method; EU-SILC; tax expenditure
Description This paper focuses on the mortgage interest deduction for owner-occupied housing in the Czech Republic. The main research question concerns the distribution of personal income tax liability given the rather generous interest deduction for owner-occupied housing loans and changes to it when restrictions are placed on the interest deduction in 2014. We used data for the Czech Republic from the EU-SILC surveys for our analysis. We estimated the value of this tax expenditure at approximately CZK 4.1 billion in 2011, with more than half the amount spent by the lowest two deciles in income distribution. Personal income tax reform is legislated to begin in 2014, one part of which will be a cap on loan interest. This reform will lead to a decrease in the yearly value of the tax expenditure but will be followed by an increase in the PIT rate. Taken together, this will generate greater tax expenditures. Our computations show that the impact will be negative on households in the highest decile, while other groups will feel some benefit.
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